Amazon – Suspension of disbelief.

Freemium Instant Video looks likely to deepen losses.

• The latest scheme to come from Amazon appears to be an idea to move its Instant Video service to a Freemium model.
• The content would be made available in two ways:
  • First: a continuation of the existing service where Amazon Prime users get unlimited streaming as part of their $99 free shipping subscription.
  • Second: The same content would be available but instead of paying for it, it would be supported by advertising. This is very similar to the business model of Spotify and the hope is clearly that new users can be enticed to make the upgrade.
• There are two problems with this idea:
  • First: Users primarily choose Amazon Prime because they buy a lot of stuff on the site and not for the video.
  • Hence a user that is using the free service is unlikely to make the upgrade as he will be paying for a free shipping option that is the main reason to subscribe in the first place.
  • Second: Amazon will be forced to pay for the content upfront meaning that there is a significant risk of incurring heavy losses should the idea not prove successful.
• Consequently, I think that this will not work for Amazon as it is very unlikely to act as a draw for new Amazon prime users.
• This is yet another sign of how disjointed Amazon’s strategy is.
• Its hardware devices have been launched into an ecosystem vacuum and seem to be very little more than a series of expensive experiments. (see here)
• Combine this, with an apparent continuing refusal to make anything more than the tiniest of net margins is unlikely to endear investors to the stock in the medium term.
• The strategies of Google, Microsoft and Apple are clear and their valuations do not require a suspension of disbelief.
• Further disappointments at Amazon look likely.